Buffett: Tax the Rich

[TubbaBlubba]

I quite agree on this point. Which is why it was so disturbing to hear Obama talk about raising capital gains tax rates even if that lowered tax revenue, because of fairness. Taxes shouldn't be levied in order to achieve economic fairness. They should be levied to raise the required revenue. Fairness can play into how those taxes are distributed, but if lowering the rate ever increases revenue, then by god you had better lower the rates if you have any sense at all, and conversely if raising rates lowers revenue then don't raise rates. And it's important to point out that the question he asked was specifically about raising rates IF that lowered revenue. He could have answered that he would not raise rates in such a case, but he doesn't think that's what would happen in real life. But he didn't.

Not sure I agree. Even if net revenue is lower, it might be considered worth it to raise taxes on people who make a lot, provided that it means that we can lower taxes for people who make less by some reasonable amount. That kind of fairness is one that can be worth sacrificing some revenue, because it makes life easier for a large segment of the population while not really making it harder for the rich people.

 

[Ziggurat]

It sounds fine in theory, in real life there are plenty of ways to avoid taxes providing you have enough money to juggle.

Yes, there are. But you need to do completely different things with that money in order to legally avoid taxes, and you can't make Buffet's fortune by doing them. For example, you can invest in US government bonds. They're tax-free. But you can't get rich off of treasuries. It is, at best, a way to maintain a fortune you already have (provided you don't spend much of it). But why is it tax free? To encourage people to invest in government bonds. Why do we want to encourage people to invest in government bonds? So that the government can offer lower interest rates. You earn less in interest when you buy government bonds, in exchange for not paying taxes on that interest. And why not? If the government were to pay more in interest, but then tax that interest to recover the additional payments, it wouldn't come out ahead.

So the perception that rich people who invest in government bonds can live tax free is really a misconception. The don't live tax free, the tax is just hidden. It's paid for with lower interest rates: the government pays out less money, and the bond holder gets less money. Which is, in the end, no different than a direct tax where the government paid out more, the bond holder got more money, but then the government demanded a fraction of that money back.

 

[jimtron]

Well that is his point. You only seem to be concerned with your concept of what is fair but not at all with what the consequences of achieving your view of fairness would be.

Are you reading my posts? In my last post I said:

Of course revenue and jobs is (oops meant "are") extremely important to the economy. I think most Americans are concerned with both fairness (no one wants to be taxed unfairly, whether rich or poor or middle class) and the health of the economy.

I'm not only concerned with my concept of fair, several times in recent posts I've talked about what most Americans want, and of course I'm concerned with the consequences, that's why in my last post I said "revenue and jobs are extremely important."

But have you even gave enough thought to the pros and cons to the economy if such changes were enacted?

Yes, I have. If we do what Buffet proposes, I don't think that would have an adverse effect on the economy; possibly it would help.

Here's what Buffet suggests:

Buffett, by the way, isn't proposing a blanket increase on today's entire top tax bracket (those making over $379,150, many of whom protest against the idea that they are "rich.") Buffett is suggesting the implementation of two new brackets--one for taxpayers making over $1 million, of whom there are 237,000 in the country, and one for taxpayers making over $10 million, of whom there are only 8,000.
In other words, Buffett's tax-increase-on-the-super-rich would affect 1 in 1,253 Americans, less than 1/10th of 1% of the population.

from here: http://www.businessinsider.com/warren-buffett-taxes-2011-8#ixzz1W51drSu6
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I don't see that having a negative impact on our economy, and it would bring in more revenue (I am not, as I've stated before, suggesting that this will solve our economic problems).

Good or bad, a lot of tax policy is designed to encourage certain behaviors like capital investment, home ownership, going green etc. Quite frankly, whether or not lower capital gains taxes are fair is not important at all to whether or not it is beneficial to the economy.

I agree that fairness is not the same thing as helping the economy--of course. As I've said, it's a complicated issue. The health of our economy is extremely important, but that shouldn't come at the expense of fairness. Let's say, hypothetically, that we tax the middle class at 90%, and the very wealthy and very poor at 10%. Let's say, also hypothetically, that this solves much of our economic problems and the economy thrives (I'm not saying this is likely, this is for the sake of argument). Well great, it's beneficial to the economy, but a huge chunk of the population is going to feel that they're treated unfairly.

I'm not arguing that we let "fairness" trump economic health, but we also shouldn't let the opposite happen.

 

[Ziggurat]

Not sure I agree. Even if net revenue is lower, it might be considered worth it to raise taxes on people who make a lot, provided that it means that we can lower taxes for people who make less by some reasonable amount.

You're considering a totally different scenario. Under the scenario you're considering, raising taxes on the rich would increase revenue. If it didn't, then it wouldn't offset lower taxes (and hence revenue) for the poor. I'm not saying that one should never do anything that's revenue negative. A tax decrease which lowers revenue could be a good thing. But a tax increase which lowers revenue? That never makes any sense at all. The only justifiable reason to raise any tax rates is to increase revenue. You can use that increased revenue to offset revenue losses from doing something else you want to do, but if raising tax rates by itself ever lowers revenue, then there's absolutely no reason to do it. And your scenario isn't an example of this.

 

[Toke]

Not sure I agree. Even if net revenue is lower, it might be considered worth it to raise taxes on people who make a lot, provided that it means that we can lower taxes for people who make less by some reasonable amount. That kind of fairness is one that can be worth sacrificing some revenue, because it makes life easier for a large segment of the population while not really making it harder for the rich people.

I vividly remember arrival at some Brazilian port.
We sailed past a marina with vessels half the size of our container ship, a few hundred meters later there were mangrove forest with little tin shacks.

One of the functions of taxation is to avoid that kind of income disparity in a society. I believe Ziggurats sig illustrates the quite often uneven legal struggle on how to set up society.

 

[Toke]

Yes, there are. But you need to do completely different things with that money in order to legally avoid taxes, and you can't make Buffet's fortune by doing them. For example, you can invest in US government bonds. They're tax-free. But you can't get rich off of treasuries. It is, at best, a way to maintain a fortune you already have (provided you don't spend much of it). But why is it tax free? To encourage people to invest in government bonds. Why do we want to encourage people to invest in government bonds? So that the government can offer lower interest rates. You earn less in interest when you buy government bonds, in exchange for not paying taxes on that interest. And why not? If the government were to pay more in interest, but then tax that interest to recover the additional payments, it wouldn't come out ahead.

So the perception that rich people who invest in government bonds can live tax free is really a misconception. The don't live tax free, the tax is just hidden. It's paid for with lower interest rates: the government pays out less money, and the bond holder gets less money. Which is, in the end, no different than a direct tax where the government paid out more, the bond holder got more money, but then the government demanded a fraction of that money back.

That sounds like a good idea to me, save on taxes for giving the government low interest loans.
It is just that I have within the last month read an article on a lot of very different ways to avoid taxes. Ones that did not any sense from a national economic perspective.
(I can't find it again. )

 

[jimtron]

If there's an argument that raising cap gains taxes is bad for the economy--isn't it true that you could invest mainly or purely in foreign securities, and make most of your money from capital gains? How does that help our economy?

 

[Chris L]

One of the functions of taxation is to avoid that kind of income disparity in a society.

On what stone tablet was that carved?

 

[lomiller]

Buffet doesn't pay capital gains tax, because he never sells stock he bought. What he pays is qualified dividends tax, and that is taxed at a lower marginal rate than his secretary.

In the majority of cases dividends are taxed at exactly the same rate as long term capital gains, so you are being pedantic at best.

But there's a reason for that. Dividends are paid out of a company's profits. And those profits are already taxed. So taxing the dividends is really the second time that money has been taxed.

Corporations are not taxed as proxies for taxing individuals as you claim, rather they are taxed because they are independent legal entities that receive significant benefit from the existence of government and its programs.

 

[lomiller]

You missed the point: when corporate taxes are included (as they should be,

As per my post above no they should not be corporations receive significant benefits both directly and indirectly from the services provided by governments. To not pay for these benefits is a market distorting subsidy that would damage a free market based economy.

 

[Ziggurat]

In the majority of cases dividends are taxed at exactly the same rate as long term capital gains, so you are being pedantic at best.

My point in noting it's dividends and not capital gains was not to discount the argument, but to be accurate. I'm not sure why that's objectionable.

Corporations are not taxed as proxies for taxing individuals as you claim, rather they are taxed because they are independent legal entities that receive significant benefit from the existence of government and its programs.

Taxes are not levied in proportion to the benefit that people or corporations receive from government, so that argument is irrelevant. And I didn't claim that corporations are taxes as proxies. Rather, my argument is about the net effect of taxation. And proxies or not, corporate income tax has a direct impact on dividends, but not on salaries. To not recognize that is to miss what's going on. One may still conclude that Buffet's tax rate is too low without having to hide what's actually going on.

Edit: Oh, and BTW, corporations are explicitly proxies for groups of people.

 

[lomiller]

My point in noting it's dividends and not capital gains was not to discount the argument, but to be accurate. I'm not sure why that's objectionable.

My "objection" was that you were being pedantic. As you now admit the comment has no bearing on the discussion taking place I’m unsure why you find me pointing out it’s irrelevant to be objectionable.

Taxes are not levied in proportion to the benefit that people or corporations receive from government, so that argument is irrelevant. And I didn't claim that corporations are taxes as proxies.

If you are not arguing that corporate taxes are proxies form individual taxes than they are irrelevant the discussion and we can ignore your post on the subject. Since corporate taxes are not a stand-in for tax on personal earnings there is no reason to reduce personal taxes just because the business pays tax.

And proxies or not, corporate income tax has a direct impact on dividends, but not on salaries. To not recognize that is to miss what's going on. One may still conclude that Buffet's tax rate is too low without having to hide what's actually going on.

So...

Business have lots of expenses that have no direct analogy for someone earning a salary. Taxes are just another cost of doing business, and since you have admitted corporations are not being levied these taxes as a proxy for individual taxation I’m not sure why we need to go any farther.

Edit: Oh, and BTW, corporations are explicitly proxies for groups of people.

Nope. Corporations are separate independent legal entities. This is why, for example, when a corporation can’t pay its bills creditors don’t come and foreclose on your house for owning shares in that corporation.

 

[Ziggurat]

If you are not arguing that corporate taxes are proxies form individual taxes than they are irrelevant the discussion and we can ignore your post on the subject. Since corporate taxes are not a stand-in for tax on personal earnings there is no reason to reduce personal taxes just because the business pays tax.

I never argued for any reduction. I pointed out that the tax comparison that Buffett tried tried to make misses a rather large, and directly relevant, part of the tax code.

Business have lots of expenses that have no direct analogy for someone earning a salary. Taxes are just another cost of doing business

No, actually, they are not just another cost. They are a cost which is calculated in very specific ways which do not resemble other business costs, ways which treat salaries as exactly the same as other expenses, but dividend payments as being completely different.

Nope. Corporations are separate independent legal entities.

You could be my proxy for various legal purposes. That doesn't remove your separate legal personhood.

This is why, for example, when a corporation can’t pay its bills creditors don’t come and foreclose on your house for owning shares in that corporation.

No, that isn't why. Limited liability is a common, but not universal, feature of corporations, but it is NOT simply the result of corporations being their own legal entity.

 

[TubbaBlubba]

You're considering a totally different scenario. Under the scenario you're considering, raising taxes on the rich would increase revenue. If it didn't, then it wouldn't offset lower taxes (and hence revenue) for the poor. I'm not saying that one should never do anything that's revenue negative. A tax decrease which lowers revenue could be a good thing. But a tax increase which lowers revenue? That never makes any sense at all. The only justifiable reason to raise any tax rates is to increase revenue. You can use that increased revenue to offset revenue losses from doing something else you want to do, but if raising tax rates by itself ever lowers revenue, then there's absolutely no reason to do it. And your scenario isn't an example of this.

One could easily imagine a short-term revenue loss to increase national growth. I'm not sure if you would lump that in under increasing revenue or not, but that's what I was thinking of.

 

[Ziggurat]

One could easily imagine a short-term revenue loss to increase national growth.

How on earth would an increased tax rate which lowers tax revenue ever increase national growth? That doesn't make any sense to me.

But note that I am definitely not trying to argue that we should never do anything that lowers revenue. Doing things which lower revenue but increase growth can definitely be worthwhile, but I don't see how you get more growth from a higher tax rate if you're not even collecting as much money. To get a revenue drop when rates increase, that pretty much requires a decrease in economic activity, i.e, shrinkage, not growth.

 

[Roboramma]

You aren't missing anything. If fairness were something he was really interested in, he could start with his own tax burden. He apparently isn't interested enough in it to do that, so color me skeptical about what his real motives might be in this case.

Rather than simply restating your opinion, perhaps you could address some of the responses to that opinion?

See for instance:

Hypothetical:

I believe that society would be better off if some of its resources were put to collective use rather than individual use. I also believe that the government is good at determining what are important social problems and how to allocate funds to solve those problems. However, I further believe that I am better than government in this regard, when it comes to funds whose value is in the range of my own personal wealth. Nevertheless, I also believe that, for a variety of reasons, this is not true of people in general. Because of this, I think we as a society would be better off if taxes were increased, in spite of the decrease in efficiency that came about from my personal contribution. Because I feel that laws should be applied equally, I feel that this small loss of efficiency (my paying taxes to the government rather than giving it to charities that I feel spend it more wisely, for instance) is unavoidable.

Please show me the inconsistencies in the above.

 

[Chris L]

Rather than simply restating your opinion, perhaps you could address some of the responses to that opinion?
See for instance:

You are right, it isn't inconsistency as much as arrogance. Given how he feels about the situation, what makes you think he has any intention of actually giving up more of his money once the law is changed? Isn't it just as likely (since he really thinks he is better at spending his money than the government) that he will find other ways to lower his tax burden, since that's what he is doing now? Also, why does he think he is the best judge of such things while other people aren't?

 

[TubbaBlubba]

How on earth would an increased tax rate which lowers tax revenue ever increase national growth? That doesn't make any sense to me.

But note that I am definitely not trying to argue that we should never do anything that lowers revenue. Doing things which lower revenue but increase growth can definitely be worthwhile, but I don't see how you get more growth from a higher tax rate if you're not even collecting as much money. To get a revenue drop when rates increase, that pretty much requires a decrease in economic activity, i.e, shrinkage, not growth.

I started writing a hypothetical, but you may be right. I was thinking something along the lines of a lower tax for the poorer and a higher tax for the richer (or, for sure, vice-versa) that would result in a net loss but stimulate growth in the long term. Basically orthodox demand-side economics (or when done in reverse, supply-side, though I think those usually advocate cutting spending to pay for the tax hikes). I'm not sure if this actually works in practice, but I doubt Reagan for all his flaws actually expected his tax policy to result in non-growth - it certainly didn't result in short-term revenue, anyway. But this probably only works when done in conjunction with a lowered tax (in my hypotheticals, the increased tax would be to compensate for the lowered tax on another segment, if imperfectly, hence revenue loss).

 

[Emperor_Gestahl]

Still with the confusion over tax rates vs tax brackets? I'm sure he's in the top bracket, isn't the tendency for people as rich as he is to make most of their money through capital gains, not regular salary/wage? That tax maxes out at 15% which would certainly bring down the average taxation down from 35%.

If his employees are dependent mostly on salary then it's not really surprising at all they pay a higher percent, as salary tax has a much higher potential rate. Not sure I agree with that setup but the mantra seems to be that we'd crash all our markets if we tried to actually raise taxes on the actually rich.

 

[jimtron]

Still with the confusion over tax rates vs tax brackets? I'm sure he's in the top bracket, isn't the tendency for people as rich as he is to make most of their money through capital gains, not regular salary/wage? That tax maxes out at 15% which would certainly bring down the average taxation down from 35%.

If his employees are dependent mostly on salary then it's not really surprising at all they pay a higher percent, as salary tax has a much higher potential rate. Not sure I agree with that setup but the mantra seems to be that we'd crash all our markets if we tried to actually raise taxes on the actually rich.

Yeah, I'm pretty sure we've established the fact that Buffet and other investors can pay as low as 15% while folks making a couple hundred thousand can pay 35%.

But I still don't understand why that kind of regressive taxation is acceptable to so many.